Property tax cap for seniors puts some Dallas-Fort Worth cities in a bind

Six years after Texas voters gave cities the ability to cap
property tax bills for senior citizens, cash-strapped communities
that opted in are starting to feel the costs.

Cities stand to forfeit billions of dollars in values from their
property tax rolls this year because of the caps even as many
municipalities face their worst budget deficits in years.

Those losses are projected to grow sharply as property values
climb and waves of aging baby boomers become eligible.

The permanent local-option caps, which voters added to the state
constitution in 2003, apply to residents age 65 and older. At least
244 cities have adopted the municipal tax caps since 2004,
according to the state comptroller.

"All of these cities, they are going to cause themselves
imminent trouble in the future," said Dick Lavine, a senior fiscal
analyst for the nonpartisan Center for Public Policy Priorities in
Austin. "That's all property value that's no longer able to support
schools, fire, police, roads and sewers."

Figuring out how much taxable value the caps have wiped off the
books is difficult. Neither the state nor local appraisal districts
keep reliable data about the losses.

Clearly, the numbers reach into the billions. By comparison,
school districts, which operate under mandatory senior citizen tax
caps, forfeited an estimated $47 billion in taxable value in
2008.

In Collin County, tax data shows, the municipal caps erased more
than $200 million in value from the books of nine communities last
year.

That figure does not include an optional tax cap for seniors on
county property taxes, which expunged an additional $560.9 million,
the analysis showed. More than 100 counties, including Dallas and
Tarrant, have passed optional senior tax caps. The city of Dallas
has not.

All of that lost taxable value translates into millions of
dollars in revenue for local government - more than $2.4 million
this fiscal year in Collin County and its cities. And it puts
greater pressure on leaders in those communities to slash services
or raise property tax rates for nonseniors.

Easing the burden

Providing tax relief for the elderly became a political hot
potato after a real estate bubble in the 1970s that, for many,
drove up property tax bills to unreasonable levels.

Texas and other states have since eased the burden on older
fixed-income homeowners with homestead and other exemptions.

The senior tax caps, written by state Rep. Fred Brown, R-Bryan,
are meant to provide further relief. The proposal received
overwhelming support from lawmakers and voters.

Once eligible, a resident's tax bill becomes frozen at its
current amount. Disabled residents also qualify, although their
impact on local budgets is far less.

The thinking is that the cap's budgetary impact will always be
limited because even as more seniors qualify, others will move or
die. When that happens, the full value of those properties returns
to the tax rolls. Widowed spouses age 55 and older continue
receiving the benefit.

Oscar Garcia, a 77-year-old Fort Worth retiree who has actively
campaigned for the senior caps, said the measure is crucial to
struggling older homeowners.

"This applies to people who have been paying their fair share of
taxes all of their lives," Garcia said. "It's not unfair to pass
the burden to the next generation. That's the way it's always been
in life."

But with property values certain to rise in the long term and
the senior population far outpacing overall growth in Texas, the
tax caps could one day become a ball and chain on municipal
budgets.

The state's elderly population, about 2.4 million, is expected
to double by 2030, according to estimates from the census and state
demographer. Texas' total population, 24 million, is projected to
grow far more gradually.

Plano's problem

Perhaps no city illustrates the predicament better than
budget-challenged Plano, which capped senior citizen tax bills in
2004.

Even as Plano struggles with budget deficits, the city is
expected to forfeit more than $765,000 in revenue this year because
of the senior cap. The losses have risen sixfold since 2005, driven
largely by growth in the city's elderly population.

The forfeited amount is relatively small given Plano's general
fund budget of about $220 million. But the losses have exacerbated
the city's financial problems and will only grow.

The cap also has blunted Plano's ability to raise money through
property tax rate increases.

Plano has twice raised its tax rate since 2006. But because of
the city's senior cap, those increases do not apply to one-sixth of
the roughly 56,000 properties in Plano that qualify for homestead
exemptions, according to local appraisal data.

Plano Mayor Phil Dyer was a City Council member when the cap
passed and voted for the measure. But even then, he expressed
concerns about the long-term consequences.

"The monetary impact is for real, and it's going to get larger,"
he said. "I'm not in favor of taking it away by any means. But it
is going to be a significant drain on a lot of this city's
resources."

For that reason, in late 2007, the city of University Park took
a different approach.

Instead of adopting a tax cap, the city approved a much larger
tax exemption for elderly homeowners that can be adjusted annually
for market conditions.

"Putting a freeze on senior taxes is a one-time forever
decision," said Kent Austin, University Park's finance
director.

"You make that decision without knowing for certain what's going
to happen in your community. What if the over-65 population goes
from 10 percent to 50 percent of your city? You've then frozen half
of your tax base."

Of course, the impact differs based on a city's demographics,
property values, tax rates and other factors.

Grand Prairie and Mesquite, for instance, predict modest cap
hits to their budgets.

"I don't think the impact is going to be that significant," said
Diana Ortiz, Grand Prairie's finance director. That city has lost
about $200,000 so far because of the caps.

'Poorly conceived'

On the whole, government experts say the logic behind the senior
tax caps is flawed.

"It's poorly conceived," said Michael Pagano, dean of urban
planning and public affairs at the University of Illinois at
Chicago. "It assumes that, at age 65, everybody retires, your
income doesn't change and you're not well off. It has nothing to do
with your ability to pay."

Brown, the author of the tax caps, said, "By and large, the
freeze has been very effective for those on fixed incomes."

But as the broader impact of his legislation has become clearer,
he wishes he had tailored the proposal more narrowly to benefit
only those of modest means.

"I don't want to see seniors in million-dollar homes getting a
huge tax break," he said.

Tweaking the tax caps would be difficult - both politically and
logistically.

Said Dyer of Plano, "It's something we decided to do. And we
can't really reverse it. Now, we're going to have to work around
it." AREA CITIES WITH TAX CAPS FOR SENIORS

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